Reduced VAT. Is your business eligible?

Published 25 April 2026

In some cases, organisations are paying 20% VAT on energy when the reduced rate should apply. For gas that's 5%. For electricity in Great Britain, it's temporarily 0% from 1 October 2026 to 31 March 2027, after which it's due to return to 5% unless the government extends it. In Northern Ireland, qualifying electricity remains at 5%.

When does the reduced rate apply?

The reduced rate may apply if any of the following is met:

1. Low consumption

• Electricity: up to 1,000 kWh per month (≈12,000 kWh a year)
• Gas: up to 145 kWh per day (≈53,000 kWh a year)

If usage stays within these limits, the supply qualifies for the reduced rate automatically, whatever it's used for.

2. Majority non-business use (most commonly charities and not-for-profits)

The test is how the energy is used, but the income split is a common way to show this. Typically, 60%+ of income comes from non-business sources:

• Membership subscriptions
• Donations and grants

rather than trading activities, such as:

• Hall hire
• Bar income
• Catering and/or events

3. Residential and holiday accommodation

Energy used in certain types of accommodation counts as domestic use, including:

• Care homes, children's homes and hospices
• Caravans and houseboats
• Self-catering holiday accommodation
• School and university residential accommodation

Hotels and inns don't qualify and remain at 20% (unless usage falls within the low-consumption limits).

Mixed use

If 60% or more of the supply is for qualifying use, the whole supply is charged at the reduced rate. If less than 60% qualifies, the supply can be split, with the qualifying share at the reduced rate and the rest at 20%. Only if none of the tests is met does the full 20% apply.

Who benefits most?

VAT-registered businesses can usually reclaim VAT on their energy bills, so the rate makes little difference to them. The organisations that gain most are those that aren't VAT-registered, such as charities, clubs, Masonic halls, community groups and lodge parks, for whom every penny of VAT is a real cost.

Responsibility sits with the business

Applying for the reduced rate is the responsibility of the organisation, not the supplier. Suppliers won't proactively assess eligibility and will apply 20% VAT unless a clear case is presented.

Where consumption is borderline, eligibility may only be confirmed at year end.

How far back can you go?

In most cases, VAT corrections can be backdated for up to 4 years. This means contacting:

• Your current supplier, and
• Any previous suppliers within that period

What to do next

If you believe you clearly meet one of the criteria above:

• Review your consumption and/or income split
• Prepare a simple explanation
• For mixed use, complete a VAT declaration (certificate) stating the percentage of qualifying use. Your supplier will need this.
• Contact your supplier(s) directly to request a VAT review

Need a second opinion?

If you'd like this checked before approaching your supplier, I offer a fixed-fee review (£95) that includes:

• Confirmation of whether you are likely to qualify
• Guidance on how to present this to your supplier
• Identification of any risks or limitations

Request a VAT review

Final thought

VAT is often overlooked. Not because it's hidden, but because no one is actively checking it.

A quick review can confirm whether you're correctly billed or whether you've been overpaying VAT.